AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 2005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 2005
COMMISSION FILE NO. 0-27589
ONE VOICE TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 95-4714338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6333 GREENWICH DRIVE, STE. 240, SAN DIEGO, CA 92122
(Address of Principal Executive Offices)
(858) 552-4466
(Issuer's Telephone Number)
(858) 552-4474
(Issuer's Facsimile Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of May 13, 2005, the registrant had 275,108,638 shares of common stock, $.001
par value, issued and outstanding.
Transitional small business disclosure format (check one): Yes [ ] No [X]
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. Page No.
--------
Balance Sheets F-3
Statements of Operations F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
March 31, December 31,
2005 2004
(UNAUDITED) (AUDITED)
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 615,664 $ 535,642
Other receivables 3,578 6,274
Inventories 13,017 9,724
Other current assets 38,759 27,756
------------ ------------
Total current assets 671,018 579,396
PROPERTY AND EQUIPMENT, net of
Accumulated depreciation and amortization 170,050 177,949
OTHER ASSETS:
Software development costs, net 63,384 77,865
Software licensing costs, net 334 835
Trademarks, net 10,780 13,310
Patents, net 110,964 118,569
Deposits 1,182 2,157
Deferred debt issue costs 100,739 96,954
------------ ------------
Total assets $ 1,128,451 $ 1,067,035
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 207,835 $ 162,625
Accrued expenses 86,732 72,887
Security deposits 5,230 12,522
License agreement liability 1,145,000 1,050,000
Current portion of convertible notes payable, net 111,760 92,044
------------ ------------
Total current liabilities 1,556,557 1,390,078
LONG-TERM DEBT:
Long term portion of notes payable, net 100,000 100,000
Long term portion of convertible notes payable 32,550 32,656
------------ ------------
Total liabilities 1,689,107 1,522,734
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock; $.001 par value, 990,000,000 shares
authorized, 272,410,649 and 246,467,927 shares
issued and outstanding at March 31, 2005 and
December 31, 2004, respectively 272,410 246,468
Additional paid-in capital 39,073,236 37,139,319
Deficit accumulated during development stage (39,906,302) (37,841,486)
------------ ------------
Total stockholders' equity (deficit) (560,656) (455,699)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 1,128,451 $ 1,067,035
============ ============
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
January 1, 1999
Three Months Ended (Inception) to
March 31, March 31,
2005 2004 2005
------------- ------------- ---------------
REVENUES $ 10,363 $ -- $ 712,789
COST OF REVENUES 1,128 -- 208,733
------------- ------------- ---------------
GROSS PROFIT 9,235 -- 504,056
GENERAL AND ADMINISTRATIVE
EXPENSES 2,074,051 1,242,434 40,410,358
------------- ------------- ---------------
NET LOSS $ (2,064,816) $ (1,242,434) $ (39,906,302)
============= ============= ===============
NET LOSS PER SHARE, basic and diluted $ (0.01) $ (0.01)
============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING,
basic and diluted 261,139,944 124,527,259
============= =============
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
January 1, 1999
Three Months Ended (Inception) to
March 31, March 31,
2005 2004 2005
---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,064,816) $ (1,242,434) $ (39,906,302)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 50,782 150,440 4,386,858
Loss on disposal of assets -- -- 23,340
Amortization of discount on notes payable 1,059,482 335,889 8,502,111
Options issued in exchange for services -- -- 459,393
Warrants issued in exchange for services -- -- 221,650
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Other receivables 2,696 137,000 (3,578)
Inventories (3,293) -- (13,017)
Other current assets (11,004) (596) (38,760)
Deposits 975 7,969 (1,182)
Deferred debt issue costs (3,785) -- (100,739)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable 45,210 269,966 207,835
Accrued expenses 13,845 -- 86,732
License agreement liability 95,000 -- 1,145,000
Security deposit (7,292) -- 5,230
---------------- ---------------- ----------------
Net cash used in operating activities (822,200) (341,766) (25,025,429)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (16,566) (1,777) (1,508,629)
Software licensing -- -- (1,145,322)
Software development costs -- (12,640) (1,675,601)
Trademarks -- -- (242,731)
Patents (1,200) (5,070) (176,695)
Loan fees -- -- (200,000)
---------------- ---------------- ----------------
Net cash used in investing activities (17,766) (19,487) (4,948,978)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock, net -- -- 18,465,148
Retirement of common stock, net -- -- (10,000)
Proceeds from loans payable -- -- 100,000
Proceeds from convertible note payable 919,988 325,000 10,665,879
Proceeds from warrant exercise -- -- 1,369,044
---------------- ---------------- ----------------
F-5
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Net cash provided by financing activities 919,988 325,000 30,590,071
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH 80,022 (36,253) 615,664
CASH AND CASH EQUIVALENTS, beginning of period 535,642 53,709 --
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 615,664 $ 17,456 $ 615,664
================ ================ ================
January 1, 1999
Three Months Ended (Inception) to
March 31, March 31,
2005 2004 2005
---------------- ---------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 26,603 $ -- $ 107,047
================ ================ ================
Income taxes paid $ 800 $ 804 $ 8,287
================ ================ ================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Options issued in exchange for services $ -- $ -- $ 377,993
================ ================ ================
Shares Issued for re-pricing of conversion rate $ -- $ -- $ 175,000
================ ================ ================
Common shares and warrants issued for
settlement $ -- $ -- $ 303,050
================ ================ ================
Warrants issued in connection with financing $ 724,305 $ -- $ 6,296,008
================ ================ ================
Beneficial conversion feature of convertible debt $ 275,695 $ -- $ 4,640,965
================ ================ ================
Common stock issued in exchange for debt $ 959,858 $ 341,798 $ 9,247,585
================ ================ ================
See accompanying notes.
F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
One Voice Technologies, Inc. (the "Company") is a voice recognition
technology company. Based on our patented technology, One Voice offers
voice solutions for the Telecom and Interactive Multimedia markets
which allow business and consumer phone users to voice dial, group
conference call, read and send e-mail and instant message, all by
voice. We offer PC OEM's the ability to bundle a complete voice
interactive computer assistant which allows PC users to talk to their
computers to quickly play digital media (music, videos, DVD) along with
read and send e-mail messages, SMS text messaging to mobile phones,
PC-to-Phone calling (VoIP) and PC-to-PC audio/video. We feel we are
strongly positioned across these markets with our patented voice
technology.
Located in San Diego, California, the Company has 11 full-time
employees and 6 consultant/part-time employees. The company is traded
on the NASD OTC Electronic Bulletin Board ("OTCBB") under the symbol
ONEV.OB. One Voice commenced operations on July 14, 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN:
Pro forma information regarding the effect on operations as required by
SFAS 123 and SFAS 148, has been determined as if the Company had
accounted for its employee stock options under the fair value method of
that statement. Pro forma information using the Black-Scholes method at
the date of grant is based on the following assumptions:
Expected life 3 Years
Risk-free interest rate 5.0%
Dividend yield -
Volatility 100%
This option valuation model requires input of highly subjective
assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing
model does not necessarily provide a reliable single measure of fair
value of its employee stock options.
For purposes of SFAS 123 pro forma disclosures, the estimated fair
value of the options is amortized to expense over the option's vesting
period. The Company's pro forma information is as follows:
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended
March 31,
2005 2004
----------- -----------
Net loss, as reported $(2,064,816) $(1,242,434)
Stock compensation (100) (21,663)
----------- -----------
Pro forma net loss $(2,064,916) $(1,264,097)
=========== ===========
Basic and diluted historical loss per share $ (0.01) $ (0.01)
Pro forma basic and diluted loss per share $ (0.01) $ (0.01)
INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements include all adjustments
(consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the results
of operations for the periods presented. Interim results are not
necessarily indicative of the results to be expected for the full year
ending December 31, 2005. The financial statements should be read in
conjunction with the financial statements included in the Company's
annual report on Form 10-KSB for the year ended December 31, 2004.
GOING CONCERN:
The Company's financial statements have been presented on the basis
that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company incurred a net loss of
$2,064,816 during the three months ended March 31, 2005 and had an
accumulated deficit of $39,906,302. The Company had negative working
capital of $885,539 at March 31, 2005. Cash flows used for operations
amounted to $822,200 for the three months ended March 31, 2005. These
factors raise substantial doubt about the Company's ability to continue
as a going concern. Management is currently seeking additional equity
or debt financing and is currently pursuing revenue-bearing contracts
utilizing various applications of its technology including wireless
technology. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION:
The Company recognizes revenues when earned in the period in which the
service is provided or product shipped. Service and license fees are
deferred and recognized over the life of the agreement.
The Company's revenue recognition is in accordance of applicable
accounting regulations, including American Institute of Certified
Public Accountants ("AICPA") Statement of Position ("SOP") 97-2,
Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9. Any
revenues from software arrangements with multiple elements are
allocated to each element of the arrangement based on the relative fair
values using specific objective evidence as defined in the SOPs. If no
such objective evidence exists, revenues from the arrangements are not
recognized until the entire arrangement is completed and accepted by
the customer. Once the amount of the revenue for each element is
determined, the Company recognizes revenues as each element is
completed and accepted by the customer. For arrangements that require
significant production, modification or customization of software, the
entire arrangement is accounted for by the percentage of completion
method, in conformity with Accounting Research Bulletin ("ARB") No. 45
and SOP 81-1.
(3) NOTES PAYABLE:
On August 8, 2003 the Company entered into a note payable in the amount of
$100,000, with principal and interest at 8.0% per annum, due on August 8, 2008.
At March 31, 2005 the balance on the note payable was $100,000.
(4) LICENSE AGREEMENT LIABILITY:
In March 2000 the Company entered into a Software License Agreement ("License
Agreement")with Phillips Speech Processing, a division of Philips Electronics
North America ("Phillips"). Pursuant to the License Agreement, the Company
received a world-wide, limited, nonexclusive license to certain speech
recognition software owned by Phillips. The initial term of the License
Agreement was three (3) years, and the License Agreement included an extended
term provision under which the License Agreement was automatically renewable for
successive one (1) year periods, unless terminated by either party upon a
minimum of sixty (60) days written notice prior to the expiration of the initial
term or any extended.
The License Agreement provides for the Company to pay a specified commission on
revenues from products incorporating licensed software, and includes minimum
royalty payment obligations over the initial three (3) year term of the License
Agreement in the aggregate amount of $1,100,000.
Under an amendment to the License Agreement entered into in March 2002, the
initial term of the License Agreement was extended for two (2) years, and the
aggregate minimum royalty payment was increased to $1,500,000. The amendment
also included a revised payment schedule of the minimum royalty payment
obligation that provided for semi-annual payments of $250,000 (due on June 30th
and December 31st of each year) during 2002, 2003 and 2004. In lieu of scheduled
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
payments, in May, 2003, based on a verbal agreement with Phillips, the Company
began making monthly payments of $15,000, of which $10,000 is being applied
against the remaining minimum royalty payment due and $5,000 is being applied as
interest.
(5) CONVERTIBLE NOTES PAYABLE:
On March 18, 2005, the Company held its first closing pursuant to a subscription
agreement it entered into with several accredited investors as of March 18,
2005, pursuant to which the investors subscribed to purchase an aggregate
principal amount of $2,000,000 in 6% convertible promissory notes, and 100 Class
A and Class B common stock purchase warrants for each 100 shares which would be
issued on each closing date assuming full conversion of the convertible notes
issued on each such closing date.
The Company received $1,000,000 of the purchase price on the initial closing
date of March 18, 2005 and will receive an additional $1,000,000 of the purchase
price pursuant to the second closing, which will take place on the 5th day after
the Company's registration statement registering the shares of our common stock,
issuable upon conversion of the promissory notes and exercise of the warrants is
declared effective by the Securities and Exchange Commission.
The convertible notes bear simple interest at 6% per annum payable June 1, 2005
and semi-annually thereafter and mature 3 years after the date of issuance. Each
investor shall have the right to convert the convertible notes after the date of
issuance at any time, until paid in full, at the election of the investor into
fully paid and nonassessable shares of our common stock. The conversion price
per share shall be the lower of (i) $0.047 or (ii) 80% of the average of the
three lowest closing bid prices for our common stock for the 30 trading days
prior to, but not including, the conversion date.
The Company issued an aggregate of 29,069,768 Class A common stock purchase
warrants and 29,069,768 Class B common stock purchase warrants to the investors,
representing 100 Class A and Class B warrants issued for each 100 shares which
would be issued on each closing date assuming full conversion of the convertible
notes issued on each such closing date. The Class A warrants are exercisable
until four years from the initial closing date at an exercise price of $0.045
per share. The Class B warrants are exercisable until four years from the
initial closing date at an exercise price of $0.06 per share. The holder of the
Class B warrants will be entitled to purchase one share of common stock upon
exercise of the Class B warrants for each share of common stock previously
purchased upon exercise of the Class A warrants.
During the three months ended March 31, 2005, $959,858 of notes payable was
converted into approximately 26,000,000 shares of the Company's common stock at
an average conversion price of $0.036 per share.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Convertible notes payable at March 31, 2005 consists of the following:
Due Principal Unamortized Net
Date Amount Discount Balance
----------------- ----------------- --------------- --------------
CURRENT PORTION
La Jolla Cove
Investors, Inc. December 12, 2005 $ 157,728 $ (45,968) $ 111,760
================= ================ ==============
LONG-TERM PORTION
Stonestreet Limited
Partnership October 28, 2007 $ 40,000 $ (35,766) $ 4,234
----------------- --------------- --------------
Alpha Capital
Aktiengesellschaft December 23, 2007 $ 75,000 $ (68,121) $ 6,879
----------------- --------------- --------------
Stonestreet Limited
Partnership December 23, 2007 $ 100,000 $ (90,211) $ 9,789
----------------- --------------- --------------
Alpha Capital
Aktiengesellschaft March 18, 2008 $ 400,000 $ (395,341) $ 4,659
----------------- --------------- --------------
Ellis International
Limited March 18, 2008 $ 125,000 $ (123,544) $ 1,456
----------------- --------------- --------------
Whalehaven Capital
Fund Limited March 18, 2008 $ 400,000 $ (395,341) $ 4,659
----------------- --------------- --------------
Omega Capital Small
Cap Fund March 18, 2008 $ 45,000 $ (44,476) $ 524
----------------- --------------- --------------
Osher Capital,
Inc. March 18, 2008 $ 30,000 $ (29,650) $ 350
----------------- --------------- --------------
TOTAL LONG TERM PORTION $ 1,215,000 $ (1,182,450) $ 32,550
================= =============== ==============
F-11
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) COMMON STOCK:
During the quarter ended March 31, 2005, Alpha Capital
Akteingesellschaft converted Approximately $433,000 of notes payable
into approximately 11,928,000 shares of the Company's common stock at
an average conversion price of $0.036.
During the quarter ended March 31, 2005, Stonestreet Limited
Partnership converted approximately $326,000 of notes payable into
approximately 8,970,000 shares of the Company's common stock at an
average conversion price of $0.036.
During the quarter ended March 31, 2005, Whalehaven Fund, Limited
converted $41,000 of notes payable into approximately 1,026,000 shares
of the Company's common stock at an average conversion price of $0.039.
During the quarter ended March 31, 2005, Ellis International Ltd.
converted approximately $84,500 of notes payable into approximately
2,098,000 shares of the Company's common stock at an average conversion
price of $0.04.
During the quarter ended March 31, 2005, Momona Capital Corp. converted
approximately $76,000 of notes payable into approximately 1,938,000
shares of the Company's common stock at an average conversion price of
$0.038.
(7) SUBSEQUENT EVENTS:
During April 2005, Alpha Capital Akteingesellschaft converted notes
payable in the amount of $75,000 at an average conversion price of
$0.028 into approximately 2,693,000 common shares.
On April 22, 2005, the Company held a closing with one accredited
investor pursuant to which the investor subscribed to purchase an
aggregate of 5,500,000 shares of restricted common stock for a total
purchase price of $145,200. In addition, the investor received an
aggregate of 5,500,000 Class A common stock purchase warrants and
5,500,000 Class B common stock purchase warrants to the investor,
representing 100 Class A and Class B warrants issued for each 100
shares which were issued on the closing date. The Class A warrants are
exercisable until four years from the closing date at an exercise price
of $0.045 per share. The Class B warrants are exercisable until four
years from the closing date at an exercise price of $0.06 per share.
The holder of the Class B warrants will be entitled to purchase one
share of common stock upon exercise of the Class B warrants for each
share of common stock previously purchased upon exercise of the Class A
warrants.
F-12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WITH THE EXCEPTION OF HISTORICAL MATTERS, THE MATTERS DISCUSSED HEREIN ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. FORWARD LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO STATEMENTS CONCERNING ANTICIPATED
TRENDS IN REVENUES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS
DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS. THERE IS ABSOLUTELY NO ASSURANCE
THAT WE WILL ACHIEVE THE RESULTS EXPRESSED OR IMPLIED IN FORWARD LOOKING
STATEMENTS.
OVERVIEW
One Voice Technologies, Inc. is a voice recognition technology company with over
$30 million invested in Research and Development and deployment of more than 20
million products worldwide in seven languages. To date, our customers include:
ABS Computer Technologies, Central Texas Telephone Cooperative, Golden State
Cellular, Hector Communications, Inland Cellular, Niveus Media, Panhandle
Telephone Cooperative, Plateau Wireless, Rural Cellular Corporation, Rural
Telecommunications Group, Tata Infotech, Telispire PCS, Walt Disney Internet
Group, Warner Home Video, West Central Wireless and Ztar Mobile. Based on our
patented technology, One Voice offers voice solutions for the Telecom and
Interactive Multimedia PC markets.
In the telecom sector, we have products for both wireless and wireline carriers.
For wireless carriers, our MobileVoice(TM) product offers wireless subscribers
the ability to read and send e-mail, group conference call, voice dial and
generate voice-to-text SMS messages, all by voice. For residential landline
carriers, our Voice-Enabled Directory Assistance (VEDA) offers residential
subscribers the ability to call business and residential numbers by simply
speaking the business or resident's name. In the telecom sector, there are over
150 wireless operators in the United States and over 1,200 ILEC's (Incumbent
Local Exchange Carriers) providing landline services to both business and
residential subscribers. Our market strategy has been to contract with local
wireless and landline carriers to quickly generate revenue from our services and
to demonstrate the market demand and readiness for our products. We currently
have several local carriers (each with under 100,000 subscribers) which have
either launched our services or are in the process of launching our services. By
creating market awareness and competition at the local carrier level, we have
begun closing deals with regional carriers, which have under 1,000,000
subscribers, and have also begun focusing on national carriers. During the first
quarter of 2005, we signed an agreement with Rural Cellular Corporation (RCC)
which is a large regional carrier in the eastern United States having
approximately 800,000 subscribers. We anticipate RCC to launch our services to
their subscribers in the third quarter of 2005. By partnering with a large
regional carrier, such as RCC, it has already generated competition and market
awareness for our services at the national carrier level. We believe this bottom
up market penetration approach will generate substantial long-term recurring
revenue streams for our company and position One Voice as a dominant leader in
voice services for the telecom industry. Upcoming MobileVoice deployments for
wireless carriers include: Plateau Wireless, Tata Teleservices in India, RCC and
Ztar Mobile (7-Eleven Speak Out service). Upcoming landline VEDA deployments
include: Panhandle Telephone Cooperative, Hector Communications and Central
Texas Telephone Cooperative.
In the PC sector, our Media Center Communicator(TM) (MCC) product allows
consumers to use their voice to play music, view photos and slideshows, read and
send e-mail and place Voice-Over-IP (VoIP) phone calls, all from their in-home
digital entertainment system - using voice commands. During the first quarter of
2005, both Microsoft and Intel demonstrated our MCC product at several major
consumer tradeshows. Additionally, Microsoft has performed user focus group
F-13
testing of our MCC product with very positive results and at the request of
Intel, we have integrated our MCC product on their next generation mobile PC
platform. This platform is currently being shown by Intel to PC OEM's for
future production and distribution commitments. Our market strategy has been
to work with PC OEM's to either bundle or sell our MCC product as an add-on
sale of their Windows XP Media Center PC's. Additionally, we anticipate
our MCC product will be sold both in-store and online by national retailers
beginning this summer, 2005.
In 2004, One Voice was selected by Tata Infotech, a leading Indian IT company
and part of the Tata Group, India's most trusted and best-known industrial
group, to co-develop a customized MobileVoice solution for the high growth
Indian telecom market. We have subsequently worked closely with members of their
team to tune our MobileVoice platform to increase voice recognition rates for
English speaking Indian users. Our mutual goal is to perform a pilot test of our
MobileVoice platform to telecom providers in India in the fourth quarter of
2005, with a potential launch in 2006. The wireless industry in India is one of
the fastest growing markets globally and we hope to position our products to
align with this growth. We see a tremendous opportunity to generate substantial
revenue with Tata and will continue to apply resources to make this a successful
venture in the Indian market.
In summary, One Voice has closed several contracts with telecom carriers and we
have begun generating revenue from local carriers including Golden State
Cellular and Inland Cellular. We anticipate this revenue stream to grow rapidly
with additional deployments from both local and regional carriers for our
wireless and landline telecom products along with upcoming national retail sales
of our Media Center Communicator PC product. Our focus is to generate a
substantial recurring revenue stream and to become operationally break-even in
the first quarter of 2006.
RESULTS OF OPERATIONS
The following table sets forth selected information from the statements of
operations for the three months ended March 31, 2005 and 2004.
SELECTED STATEMENT OF OPERATIONS INFORMATION
Three Months Ended
March 31,
2005 2004
------------ ------------
Gross revenues $ 10,363 $ --
Cost of sales (1,128) --
General and administrative expenses (2,074,051) (1,242,434)
------------ ------------
Net loss $ (2,064,816) $ (1,242,434)
============ ============
Discussion of the three months ended March 31, 2005 compared with the three
months ended March 31, 2004.
We had revenues of $10,363 for the three months ended March 31, 2005. There were
no revenues for the three months ended March 31, 2004.
General and administrative expenses increased to $2,074,051 for the three months
ended March 31, 2005 from $1,242,434 for the same period in 2004. The increase
in general and administrative expenses over the same quarter in 2004 was due
primarily to the amortization of debt discounts during the first quarter. Salary
and wage expense was $327,500 for the three months ended March 31, 2005 as
F-14
compared to $277,000 for the same period in 2004. The increase in 2005 as
compared to 2004 arose primarily from an increase in our labor force. Legal and
consulting expenses increased to $89,000 for the three months ended March 31,
2005 as compared to $61,000 for the same period in 2004. Depreciation and
amortization expenses decreased to $51,000 for the three months ended March 31,
2004 from $150,000 for the same period in the prior year, primarily due to the
retirement of fixed assets. Amortization and Depreciation expenses consisted of
patent and trademarks, computer equipment and software development fees.
Interest expense increased to $1,057,000 in 2005, as compared to $345,000 in
2004, primarily due to amortization of debt discounts.
We had a net loss of $2,064,816, or basic and diluted net loss per share of
$0.01, for the three months ended March 31, 2005 compared to $1,242,434, or
basic and diluted net loss per share of $0.01, for the same period in 2004.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, we had a negative working capital of $885,539 as compared to
negative working capital of $1,124,263 at March 31, 2004.
Net cash used in operating activities was $822,200 for the quarter ended March
31, 2005 compared to $341,766 for the quarter ended March 31, 2004. We believe
that our average monthly cash requirements approximate $260,000. From inception
on January 1, 1999 to March 31, 2005, net cash used for operating activities was
$25,025,429.
Net cash used in investing activities was $17,766 for the quarter ended March
31, 2005 compared to $19,487 for the quarter ended March 31, 2004. During the
three months ended March 31, 2005, cash was primarily used for capitalized
computer equipment and patents. From inception on January 1, 1999 to March 31,
2005, net cash used for investing activities was $4,948,978.
Net cash provided by financing activities was $919,988 for the quarter ended
March 31, 2005 compared to $325,000 for the quarter ended March 31, 2004. From
inception on January 1, 1999 to March 31, 2005 net cash provided by financing
activities was $30,590,071.
We incurred a net loss of $2,064,816 during the quarter ended March 31, 2005,
and had an accumulated deficit of $39,906,302. Our losses through March 31, 2005
included interest expense, development costs and operational and promotional
expenses.
We anticipate maintaining a cash balance through our financial partners that
will sustain operations up to December 2005. We continue to rely heavily on our
current method of convertible debt and equity funding, which has financed us
since 2001, until we are operationally breakeven. The losses through the quarter
ended March 31, 2005 were due to minimal revenue and our operating expenses,
with the majority of expenses in the areas of: salaries, legal fees, consulting
fees, as well as amortization expense relating to software development, debt
issue costs and beneficial conversion features. We face considerable risk in
completing each of our business plan steps, including, but not limited to: a
lack of funding or available credit to continue development and undertake
product rollout; potential cost overruns; a lack of interest in its solutions in
the market on the part of wireless carriers or other customers; potential
reduction in wireless carriers which could lead to significant delays in
consummating revenue bearing contracts; and/or a shortfall of funding due to an
inability to raise capital in the securities market. Since further funding is
required, and if none is received, we would be forced to rely on our existing
cash in the bank or secure short-term loans. This may hinder our ability to
complete our product development until such time as necessary funds could be
raised. In such a restricted cash flow scenario, we would delay all cash
intensive activities including certain product development and strategic
initiatives described above.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of our chief executive officer
and chief financial officer of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon
this evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms. There was
no change in our internal controls or in other factors that could affect these
controls during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
F-15
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no bankruptcy, receivership or similar proceedings.
There have been no material reclassifications, mergers, consolidations, or
purchase or sale of a significant amount of assets not in the ordinary course of
business.
As of our fiscal quarter ended March 31, 2005, we are aware of one pending
litigation matter. That matter was filed by La Jolla Cove Investors, Inc.
("LJCI") for $2.4 million in damages. LJCI holds convertible debentures related
to past financings. LJCI contends that One Voice Technologies, Inc. failed to
honor its conversion notices resulting in damages. It has been explained to LJCI
that there is an ambiguity on the date of our conversion obligation and that
damages are speculative. A part of that dispute has been resolved by our
settlement agreement to register 8,425,531 shares to honor the past conversion
notice and an additional 8,425,531 shares pursuant to such agreement. A lawsuit
was filed but is currently stayed by stipulation while the parties work out a
resolution. It is difficult to access the potential liability or likelihood of
success of such a claim. It does appear that a resolution involving registration
of additional stock in favor of LJCI is probable. An Interim Settlement
agreement was entered into between LJCI and One Voice on July 29th, 2004 and
further amended on August 13, 2004. The parties agreed that One Voice shall
include 16,851,062 shares of its common stock, on behalf of LJCI, in the next
registration statement which was filed by One Voice. Such registration statement
went effective with the Securities and Exchange Commission on October 15, 2004.
In addition, the Interim Settlement Agreement includes a provision whereby LJCI
will never institute any action or suit at law or in equity against any other
parties with whom we may enter into financing transactions provided that we
comply with the Interim Settlement Agreement.
As of our fiscal quarter ended March 31, 2005, we are aware of four claims
asserted against us that may result in litigation. The first is a claim by
Genuity Inc. ("Genuity") for alleged failure to pay for a functioning dial-up
service for a virtual ISP product we had planned on offering in the fall of
2000. The initial Genuity Claim was for $231,935.36. That claim dropped to
$102,816.00 when we provided the Genuity agent with evidence that Genuity never
delivered the promised service and we received no benefit from the contract. We
have offered nothing to settle the claim. Approximately two years have passed
since the last communication to us on this matter. No litigation has been filed.
It is difficult to determine the likelihood of the matter being pursued by
Genuity or the probability of success should it be pursued.
The Second Claim is by Penton Media for cancellation fees related to the
following trade shows: Spring Internet World 2001; Wireless West 2001; and
Wireless East 2002. We signed up for and paid $60,000.00 for Spring Internet
World 2001. We changed the scope of our presence at that show (i.e., used a much
smaller space) and reached a verbal agreement to have the balance of the $60,000
to be used toward space at the remaining two shows. We and Penton were never
able to come to terms regarding the credit to be applied for those shows, booth
size, or location. The necessary additional agreements were not signed. We did
F-16
not use any space at the two subsequent shows. We have been contacted by an
agent for Penton claiming a balance due of $19,980.00. We have attempted to have
Penton provide information to substantiate its claim in light of the fact that
we actually used considerably less space than we actually paid to use. We need
to further investigate this claim to determine if the amount claimed is owed or
whether we are due a refund. There has been no contact or activity related to
this matter during the past two years.
The Third Claim involves Alpha Tech Stock Transfer Company ("Alpha Tech"). Alpha
Tech has asserted a claim against us in the amount of $200,000.00. In a
subsequent phone conversation, Alpha Tech's counsel clarified that the claim was
actually $150,000.00. The nature of the claim is as follows: Alpha Tech is the
former transfer agent for us. Alpha Tech was sued. That claim was settled and
Alpha Tech has now made a claim to us pursuant to a letter dated May 16, 2003.
In that claim, Alpha Tech contends that we should cover its litigation costs
from the prior proceeding. Alpha Tech's claim appears to center around an
indemnity agreement signed by Dean Weber, our CEO, on behalf of us requesting
that Alpha Tech replace lost shares of a shareholder Stephanie Jackson. We
investigated Alpha Tech (which we replaced some time ago) and learned that Alpha
Tech has been removed as a stock transfer agent by the SEC for prior illegal
conduct. Alpha Tech had been the transfer agent for the corporation that
preceded us and we subsequently retained a new transfer agent. This is a matter
related to activities of our shareholders, the shareholders of our predecessor
corporation and of the transfer agent. We intend to investigate the claim and to
inform counsel for Alpha Tech that there is no basis for a claim against us. It
is difficult to determine if Alpha Tech will pursue the matter further. There
has been no activity on this claim in well over a year.
The Fourth Claim involves a request for indemnity from Warner Brothers regarding
the Harry Potter DVD. We provided technology as part of a "special feature" for
the Harry Potter DVD. Under the agreement between us and Warner Brothers, we
agreed to indemnify Warner Brothers if a claim was made that the technology
licensed by us to Warner Brothers infringed on some third party's rights. A
claim was made to Warner Brothers regarding infringement. Warner Brothers
contacted us to make us aware of the claim. Our counsel contacted the claimant
who contended that it was not our technology which was infringing. This was
explained to Warner Brothers' counsel. Warner Brothers explained that it did not
feel that there was any infringement and that this was a nuisance claim. It
stated that it intended to settle the matter for a nuisance payment and then
would look to us for contribution. It is hard to estimate the extent of
liability, if any. There has been no activity on this matter in nearly two
years.
As of the date of this letter, we do not have a material outstanding balance for
legal services.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The securities described below represent our securities sold by us for the
period starting December 31, 2004 and ending March 31, 2005 that were not
registered under the Securities Act of 1933, as amended, all of which were
issued by us pursuant to exemptions under the Securities Act. Underwriters were
involved in none of these transactions.
PRIVATE PLACEMENTS OF COMMON STOCK AND WARRANTS FOR CASH
None
F-17
SALES OF DEBT AND WARRANTS FOR CASH
On March 18, 2005, the Company held its first closing pursuant to a Subscription
Agreement it entered into with several accredited investors dated as of March
18, 2005, pursuant to which the investors subscribed to purchase an aggregate
principal amount of $2,000,000 in 6% convertible promissory notes, and 100 Class
A and Class B common stock purchase warrants for each 100 shares which would be
issued on each closing date assuming full conversion of the convertible notes
issued on each such closing date.
The Company received $1,000,000 of the purchase price on the initial closing
date of March 18, 2005 and will receive $1,000,000 of the purchase price
pursuant to the second closing, which will take place on the 5th day after the
Company's registration statement registering the shares of our common stock,
issuable upon conversion of the promissory notes and exercise of the warrants is
declared effective by the Securities and Exchange Commission. The convertible
notes bear simple interest at 6% per annum payable June 1, 2005 and
semi-annually thereafter and mature 3 years after the date of issuance. Each
investor shall have the right to convert the convertible notes after the date of
issuance at any time, until paid in full, at the election of the investor into
fully paid and nonassessable shares of our common stock. The conversion price
per share shall be the lower of (i) $0.047 or (ii) 80% of the average of the
three lowest closing bid prices for our common stock for the 30 trading days
prior to, but not including, the conversion date.
The Company issued an aggregate of 29,069,768 Class A common stock purchase
warrants and 29,069,768 Class B common stock purchase warrants to the investors,
representing 100 Class A and Class B warrants issued for each 100 shares which
would be issued on each closing date assuming full conversion of the convertible
notes issued on each such closing date. The Class A warrants are exercisable
until four years from the initial closing date at an exercise price of $0.045
per share. The Class B warrants are exercisable until four years from the
initial closing date at an exercise price of $0.06 per share. The holder of the
Class B warrants will be entitled to purchase one share of common stock upon
exercise of the Class B warrants for each share of common stock previously
purchased upon exercise of the Class A warrants.
The above offering and sales were deemed to be exempt under Regulation D and
Section 4(2) of the Securities Act. No advertising or general solicitation was
employed in offering the securities. The offerings and sales were made to a
limited number of persons, all of whom were accredited investors, business
associates of One Voice or executive officers of One Voice, and transfer was
restricted by One Voice in accordance with the requirements of the Securities
Act of 1933. In addition to representations by the above-referenced persons, we
have made independent determinations that all of the above-referenced persons
were accredited or sophisticated investors, and that they were capable of
analyzing the merits and risks of their investment, and that they understood the
speculative nature of their investment. Furthermore, all of the above-referenced
persons were provided with access to our Securities and Exchange Commission
filings.
OPTION GRANTS
There were no option grants during the first quarter of 2005.
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
None.
F-18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS:
Exhibit Number Description
-------------- -----------
31.1 Certification of the Chief Executive Officer of One Voice
Technologies, Inc. Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
31.2 Certification of the Chief Financial Officer of One Voice
Technologies, Inc. Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.1 Certification Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
F-19
SIGNATURES
In accordance with the requirements of the Exchange Act of 1933, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONE VOICE TECHNOLOGIES, INC., A NEVADA CORPORATION
DATE: JUNE 3, 2005 BY: /S/ DEAN WEBER
----------------------------------------------
DEAN WEBER, CHAIRMAN & CHIEF EXECUTIVE OFFICER
DATE: JUNE 3, 2005 BY: /S/ RAHOUL SHARAN
----------------------------------------------
RAHOUL SHARAN, CHIEF FINANCIAL OFFICER
F-20